What is the Business code for a stock trader with MTM?

[likesky1010]

TurboTax asked me for the business code when I added my new trading business.  I got different answers from different sources.  But I trust answers from here. please help.

Searched online:

The most commonly referenced Business Code provided on the Schedule C is 523900. Other financial investment activities (including investment advice) and in my opinion is the most appropriate for a person that meets the definition of “day trader” regardless of the accounting method chosen.

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ChatGPT:

​As an independent trader who has made the mark-to-market (MTM) election under Section 475(f), selecting the appropriate business code for your securities trading activities is important. The North American Industry Classification System (NAICS) provides codes that classify business activities. For a sole proprietor engaged in securities trading on your own account, the following NAICS codes are relevant:​NAICS Association+6CohnReznick+6IRS+6

• 523110 – Investment Banking and Securities Dealing: This code includes establishments primarily engaged in underwriting, originating, and maintaining markets for securities. It also covers entities acting as principals in buying or selling securities generally on a spread basis, such as securities dealers. ​NAICS Association

• 523120 – Securities Brokerage: This code pertains to establishments primarily engaged in acting as agents (i.e., brokers) in buying or selling securities on a commission or transaction fee basis. ​NAICS Association+1NAICS Association+1

Given that you are trading securities for your own account and not acting as an agent or broker for others, NAICS code 523110 – Investment Banking and Securities Dealing appears to be the most appropriate classification for your business activities.​NAICS Association

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Grok:

As an independent stock trader with Mark-to-Market (MTM) status, the appropriate business code for your tax return is 523900. This six-digit code is used on tax forms like Schedule C to identify your business activity to the IRS.

Why 523900?

• IRS Classification: The IRS uses the North American Industry Classification System (NAICS) codes to categorize business activities. For independent traders who buy and sell securities for their own account, the IRS designates code 523900 under "Other Financial Investment Activities."
• MTM Status: By electing MTM under Section 475(f) of the Internal Revenue Code, your trading is treated as a business, with gains and losses reported as ordinary income rather than capital gains. Code 523900 aligns with this classification, specifically including "Traders in securities (for own account)" as per IRS Schedule C instructions.

Why Not Other Codes?

• 523110 - Investment Banking and Securities Dealing: This applies to firms engaged in underwriting or dealing securities, not individual traders.
• 523120 - Securities Brokerage: This is for brokers facilitating trades for others, not traders operating for their own account.
• 523910 - Miscellaneous Intermediation: This covers activities like investment clubs, which don’t fit an independent trader.

Key Takeaways

• Use 523900 on your Schedule C to accurately reflect your trading business with MTM status.
• This code ensures compliance with IRS guidelines and properly categorizes your activity as a professional trader.

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DeepSeek:

For an independent stock trader in the U.S. who marks-to-market (MTM) their trading activity, the appropriate business activity code for tax filing (IRS Form 1040, Schedule C) is typically:

523130 – Commodity Contracts Dealing

or

523140 – Securities Brokerage

However, the most accurate code for a professional trader using MTM (elected under IRC §475(f)) is:

523910 – Miscellaneous Financial Investment Activities

Key Points:

1. MTM Traders must file:

   • Form 4797 (for ordinary gain/loss treatment under §475).

   • Schedule C (if trading is a business, not an investment).

   • Form 3115 (if first-time MTM election).

2. Trader Tax Status (TTS) vs. Investor:

   • If you qualify as a trader (frequent, substantial, and continuous trading), you can deduct business expenses.

   • If not, you’re an investor, and capital gains apply (no Schedule C).

3. Election Deadline:

   • MTM must be elected by April 15 (or the original due date of the tax return) for the current tax year.

[DianeW777 · Accepted solution]

It depends. When using a business code for your Schedule C, you want to use the one that best describes what you are going to do in your planned activity. 523900 is logical for you based on the current list of financial business codes. 

My advise is to go with the IRS instructions and not other avenues of information.  There is a reason they have reduced the number of codes in their instruction which tells me they want to simplify possibly.

• Schedule C Instructions (page C-19